John, a single father, has AGI of $51,000 in 2018. During the year, he pays $4,000 in qualified tuition for his dependent son, who just started attending Small University. What is John's American Opportunity credit for 2018?

$2,500

Explanation:

John's American Opportunity credit for 2018 is calculated as follows:

Level 1: First $2,000 of qualifying expenses = $2,000

Level 2: 25% of the next $2,000 of qualifying expenses =  500

Note that, Qualifying expenses include tuition, fees, books and course materials.

($4,000 - $2,000 [level 1 amount]) x 25%) = $500,

Therefore,John's American Opportunity tax credit, 2018 = $2,500

It should be understood that, The American Opportunity credit may be claimed for the expenses of students pursuing bachelor's or associate's degrees or vocational training. Room and board, transportation costs, and personal living expenses are not qualifying expenses. Tuition, fees, books, and course material expenses that qualify for the American Opportunity credit can be paid on behalf of the taxpayer, his or her spouse, or dependents.

Note that, The credit opportunity is calculated as 100% of the first $2,000 of tuition, fees, books, and course materials. Then 25% of the next $2,000 for a maximum annual credit per student of $2,500. The credit is available for the first 4 years of post-secondary education.

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